Along the wharfs of Dubai Creek the dhows are being loaded with cargo just as they have been for generations. Everything from second-hand car tyres to new refrigerators, and from men’s sandals to cases of Vimto fruit juice is stacked high on the dockside.

The stamps on some of the crates and boxes show that they have already travelled long distances, from such places as China and Taiwan, but other goods are sourced from within the region, from Saudi Arabia, Bahrain or Iraq. What they all have in common is their destination: most of the goods are waiting to make the short trip across the Persian Gulf to Iran.

Dubai has long been a bridge between Iran and the wider world. Over the decades the authorities in the UAE’s second city have welcomed their near-neighbours with open arms, and Iran has responded in kind. Iran’s citizens have bought property in Dubai, many of its banks have set up branches there and trading firms have prospered sending goods back and forth.

The emirate’s banks have also done well out of the relationship, helping to oil the wheels of trade between the two countries. But in recent years much of the trade has fallen away as Dubai has belatedly begun to enforce international sanctions on the Islamic republic. As the scene along the creek illustrates, some elements of cross-Gulf commerce are still thriving, but much of the trade and finance has dried up.

"Dubai is now enforcing the compliance requirements much more strictly than before," says Sarosh Zaiwalla, a senior partner at London-based Zaiwalla & Co, a law firm representing a number of Iranian banks. "For the first few years of the sanctions Dubai sort of shut its eyes and allowed things to happen, but in the last year or so it has been much more strict."

The regime is even tighter for any bank with interests in the US, with the US Treasury levying fines against a string of institutions that it deems to have violated its sanctions on Tehran. Among the most recent cases are a $33 million fine agreed with Royal Bank of Scotland in December and a $9.5 million fine for Bank of Moscow in January. Others have been caught before and, as a result, many international banks in Dubai now simply refuse to work on anything that involves Iran, even if, on the face of it, the trade would not be covered by sanctions. "

In the UAE there are a lot of general trading companies that by their nature trade in everything," says one international banker in Dubai. "It’s very difficult to try to determine the ownership of these companies, and people have very creative ways of hiding the ownership. So we’ve worked extensively to try to filter out any kind of Iranian connection. We have a blanket policy of not touching Iran, no matter what, even if it’s humanitarian aid."

Trade levels

The recent clampdown by the emirate’s authorities has driven many of the Iranian merchants from Dubai to other places from which they find it easier to operate, such as Turkey and Georgia. And with them went their banking business, including trade finance and retail banking. The most recent figures available from the UAE’s National Bureau of Statistics show that re-exports from the UAE to Iran, most of which will have gone through Dubai, fell from 22.5% of all re-exports in 2011 to just 13.2% in the first half of 2012. In monetary terms the value fell from Dh47.4 billion ($12.9 billion) in 2011 to Dh13.3 billion the first half of 2012. Since then trade levels are believed to have declined even further.

Now, after years of bluster and shadow-boxing, there appears to be a realistic prospect of Iran finally striking a deal with the US and other international powers over its nuclear programme – something that Tehran insists is simply to generate electricity, but that Washington claims is a cover for an atomic weapons programme. With the prospect of a deal comes the promise that the old international trade ties might soon be revived. The questions for bankers in Dubai are whether or not all the business that has moved elsewhere will return and how quickly.

On the first of these points, most bankers in the emirate seem to think the answer is yes, including Khaled Sifri, chief executive of Emirates Investment Bank. On the 15th floor of the Festival Tower, he has a clear view of one aspect of what makes Dubai such a useful jumping-off point for businesses wanting to trade with Iran. From his office he can see the endless stream of aircraft landing and taking off at Dubai International Airport. It is in fact just one of two international airports in the emirate these days, with the even larger Al Maktoum International still being built up in stages. Between them these two airports are a globally important travel hub, linking Dubai and the rest of the Gulf to the wider world.

"I think the Dubai economy would gain from an easing of sanctions on Iran because of the historical relationships," says Sifri. "The sanctions have had a dampening effect on a lot of activities of the banks. Before the sanctions, banks were involved in a variety of trade activity with Iran and acted as intermediaries and providers of trade facilities. With the advent of the blacklistings and so on, a lot of that business went away. My expectation is that when the sanctions are eased or removed the business will start coming back and the financial services sector will then benefit from the return of that category of business."

Bankers in Dubai have learnt to be wary of speaking too openly on the subject given its sensitivity, but there is little doubt that many take a similar view to Sifri. Other bankers say they are also looking forward to what would be a promising area of business in the future and one that might help to cement the wider revival in the emirate’s economy.

"We can’t deal with Iran at this point in time, but if it opens up I am sure the contacts that were there before will be revived," says Peter Baltussen, CEO of Commercial Bank of Dubai. "Dubai will be very quick to open those doors again if it’s allowed to and get back to the levels of trade that were there before.

"Dubai is a natural trading partner in terms of distance and culture. A lot of Iranians migrated into Dubai and they still have contacts and families there, and people want to do business with parties they know. So as soon as it opens up and we are allowed to deal with Iran it will be a very interesting opportunity, particularly on the trade side. Around 30% of our portfolio is trade finance, so it is very important to us. We’ll be very keenly watching the situation, and once we are allowed to we definitely will do business with Iran."

The optimists think it is a case of when, not if, a permanent deal to dismantle the sanctions regime can be struck, but the reality is that the diplomatic wheels do still have to turn a few more revolutions and there is no guarantee that things will go smoothly in the talks scheduled over the coming weeks and months.

Hopes were first raised of a solution being found in November last year when an interim deal was signed in Geneva between Iran and the international negotiating group known as P5+1, which includes the five permanent members of the UN Security Council – China, France, Russia, the UK and the US – as well as Germany. That deal came into effect in January and is due to last six months, during which time the sanctions regime has been eased, with Iran being given a little more freedom to sell its crude oil overseas and to import some things long denied to it, such as spare parts for Iran Air’s fleet of ageing Boeing aircraft.

The deal has also given both sides time to try to strike a permanent, comprehensive deal. However, the last round of talks ended in Vienna in mid-May without any noticeable progress being made. The negotiating teams will resume their efforts in the Austrian capital in June, in the knowledge that the interim deal is due to expire on July 20.

There are certainly some in the region who doubt that a comprehensive deal is possible. "If you’re talking about the complete removal of Iranian sanctions, there is a big potential gain for Dubai’s banks and for Dubai as a financial centre," says a Riyadh-based banker. "But no one here expects that. They don’t expect a comprehensive deal to be concluded."

That might be wishful thinking on the part of some in the Saudi capital, where distrust of Tehran runs far higher than in most places. In the meantime, the Iranian economy appears to have made some early gains from the interim accord. The state-owned news agency Irna reported that Iranian crude oil and condensate sales reached 1.41 million barrels a day in February, the highest level for a year. Most of those sales are to Asian customers, including China, India, Japan and South Korea.

Numerous trade delegations have also been pouring into the Iranian capital, particularly from Asia and Europe, as they try to get an insight into what opportunities there might be further down the road.

The banking sector, however, does not appear to be benefiting just yet, not least because the restrictions on Iran’s finance industry remain in place. Bankers in Dubai say that the temporary scaling back of some sanctions has yet to translate into any increase in business for them.

"We have not noticed any difference before or after the interim deal with Iran," says a senior investment banker in Dubai. "But Iranians have been operating in Dubai and the Gulf for many years and I’m sure if the situation goes back to normal then definitely business will pick up."

The same wait-and-see situation is true for Iranian banks.

"The interim deal has had a very significant effect, but the sanctions against my clients have still remained," says Zaiwalla, who has been battling in the UK and European courts to have sanctions lifted against some of his clients, including Bank Mellat. He has had some success in this, with the UK Supreme Court ruling last year that the UK government’s sanctions on the bank should be lifted, although a claim for compensation has yet to be settled and the legal fight continues in Europe.

As the volume of trade delegations to Tehran testifies, if and when the sanctions are lifted there will be no lack of international businesses queuing up to get involved in Iran’s economy and at that point the opportunity for Dubai should also come into greater focus. Indeed, some observers in the region suggest that Dubai rather than Iran will be the one to make the early gains from any deal.

"The most immediate beneficiary of a lifting of sanctions on Iran might not be Iran itself but Dubai, which is already positioning itself as the entry point for international businesses looking to re-establish themselves in Iran once circumstances allow," says Simon Williams, chief economist of HSBC Middle East.

Dubai’s government has made no secret of its desire to resume normal relations with Iran and to allow Tehran to once again trade with the world via the emirate’s airports and ports.

In an interview with the BBC in January, Sheikh Mohammed bin Rashid al Maktoum, the ruler of Dubai, made plain his position. He was asked: Do you believe the time is now right to lift sanctions on Iran? In slightly broken English he replied "I think so... You see Iran is our neighbour and we don’t want any problem… [If] they agree with America and America agree and lift the sanction, everyone will benefit."

The desire to reopen trade links with Iran is part of Dubai’s overarching strategy of being a trading hub for the region, a place where politics plays a secondary role to the mercantile way of life. In the same BBC interview, Sheikh Mohammed also spoke of trading with Israel in the future if it could agree a peace deal with the Palestinians. "After the peace process, we will do everything with Israel you know. We will trade with them and welcome them," he said.

While Dubai may be keen on a deal between Iran and the international negotiating group, other countries in the region, such as Saudi Arabia and Israel, will be pressing the US to be extremely cautious. An even more daunting hurdle might be the domestic opposition to a deal in both the US and Iran. If all these hurdles can be overcome, then Dubai looks better placed to benefit than anywhere else.

Tempering optimism

There is one further unknown in the event of a deal, and that is how quickly the sanctions regime will be dismantled. The Iranians would like the whole edifice to be torn down in one swift move, but it could well be a more gradual process; another reason for bankers in Dubai to temper any optimism they might have.

"If there is a permanent deal with Iran, it will be very good for Dubai. In the first five years Dubai will be the main beneficiary without a doubt," says another expatriate banker in the city. "For Iran’s infrastructure to come back to some semblance of modernity will take about five years and Dubai can provide that bridge. But the banking industry will not be the first to benefit if a deal happens. It will be the industrial guys that will be the first to go into Iran. We will have to wait for the sanctions to be fully lifted and the paperwork completely done before we are able to do something."

As that suggests, no one is expecting anything to happen overnight. And in any case the banks have plenty to keep themselves busy in Dubai as the economy there continues to grow.

"Whilst the progress being made at these talks [between Iran and the P5+1] appears promising, it is far too early for us to change our approach," says Vincent Cook, CEO of National Bank of Fujairah, which has long had a strong role in trade finance. "The temporary relaxation in sanctions applied to a very limited number of areas, none of which form part of our business.

"As a trade finance bank, we would only stand to gain when things improve. In the long run, Iran is a large enough economy to develop its own capabilities to participate in the global arena. However, it will take many years to accomplish this state during which time Dubai would certainly provide great assistance and, in return, enjoy the increase in activity. There is still much that needs to happen before we will be in a position to make such concrete plans."